ACIT, CHENNAI vs. S.RAVINDRANATHAN, CHENNAI
In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.
What did the Tribunal hold?
The Tribunal held that the loan received by the assessee from the subsidiary company cannot be treated as deemed dividend in his hands. This is because the assessee was not a shareholder of the subsidiary company from which the loan was received.
What were the facts?
The assessee, a Managing Director of two private limited companies, received a substantial loan from one of the companies, which was a subsidiary of the other. The assessee held over 50% shares in the parent company.
What were the issues?
Whether a loan received by a person from a company in which he is not a shareholder, but in which the parent company (where he is a majority shareholder) holds shares, can be treated as deemed dividend under Section 2(22)(e) of the Income-tax Act.
Which sections of the Income-tax Act were involved?
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ‘B’ BENCH, CHENNAI
Before: SHRI N.R.S. GANESAN & SHRI A. MOHAN ALANKAMONY
आदेश /O R D E R
PER N.R.S. GANESAN, JUDICIAL MEMBER:
This appeal of the Revenue is directed against the order of the Commissioner of Income Tax (Appeals) – IV, Chennai, dated 21.08.2014 and pertains to assessment year 2008-09.
The only issue arises for consideration is with regard to addition made by the Assessing Officer under Section 2(22)(e) of the Income-tax Act, 1961 (in short “the Act”).
No one appeared for the assessee inspite of service of notice. Therefore, we heard Shri B. Koteswara Rao, the Ld. Departmental Representative and proceed to dispose the appeal on merit.
According to the Ld. D.R., the assessee is the Managing Director of M/s MPL Parts Pvt. Ltd. and M/s MPL Cars Pvt. Ltd. According to the Ld. D.R., the assessee being a common director in both the companies, received loan and advance from M/s MPL Cars Pvt. Ltd. to the extent of `13,66,50,599/-. The Ld. D.R. further submitted that M/s MPL Cars Pvt. Ltd. is a subsidiary company of M/s MPL Parts Pvt. Ltd. According to the Ld. D.R., the assessee being the director, is holding more than 50% shares in the holding company, namely, M/s MPL Parts Pvt. Ltd. By virtue of majority shareholder in the parent company, the assessee virtually controlled the entire administration of M/s MPL Cars Pvt. Ltd. Therefore, according to the Ld. D.R., the assessee is a beneficial shareholder of M/s MPL Cars Pvt. Ltd. Therefore, the CIT(Appeals) is not correct in deleting the addition made by the Assessing Officer.
We have heard Ld. Departmental Representative and also perused the material available on record. M/s MPL Cars Pvt. Ltd. Is admittedly a subsidiary company of M/s MPL Parts Pvt. Ltd. It is also not in dispute that the present assessee is holding more than 50% shares in M/s MPL Parts Pvt. Ltd. Admittedly, the assessee received loan from M/s MPL Cars Pvt. Ltd. in which the assessee is not a shareholder. This is not in dispute. The question arises for consideration is - when the assessee received advance from M/s Cars Pvt. Ltd. in which he is not shareholder, however, the parent company is a shareholder, whether advance received by the assessee has to be treated as deemed dividend in his hands?
We have carefully gone through the provisions of Section 2(22)(e) of the Act. Under the scheme of Income-tax Act, dividend has to be assessed only in the hands of the shareholder and not in the hands of third party. Admittedly, the assessee is not a shareholder of M/s MPL Cars Pvt. Ltd. The advance made by M/s MPL Cars Pvt. Ltd. can be for the benefit of M/s MPL Parts Pvt. Ltd., the parent company. In other words, the advance received by the assessee may be for the beneficial interest of M/s MPL Parts Pvt. Ltd. When the advance made at the instance of M/s MPL Parts Ltd., this Tribunal is of the considered opinion that under the scheme of Income-tax Act, the dividend income has to be assessed only in the hands of shareholder even though the money was advanced to third party for the benefit of the shareholder. In this case, the money was advanced to the assessee. However, the assessee is not a shareholder of M/s MPL Cars Pvt. Ltd. Therefore, there is no question of assessing the advance as deemed dividend in the hands of the present assessee. Therefore, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed.
In the result, the appeal filed by the Revenue is dismissed.
Order pronounced on 9th June, 2016 at Chennai.
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